Why do I need an Umbrella Company?

If you are new to the contracting and freelancing world you have probably been advised to find yourself an Umbrella Company; your first thought may well have been what on earth is an Umbrella Company???

An Umbrella Company will employ you under an overarching Contractor of Employment and will be responsible for raising invoices for the work that you do whilst on assignment, this means that you will not have the worry of setting up and running a company or appointing an accountant.

They will then, once funds are received from the agency coordinating the assignment, make payment to you with the appropriate deductions for tax and national insurance contributions; allowable expenses will be processed at the same time.

Umbrella Company payments made via PAYE

An Umbrella Company will make payment to you through PAYE (Pay As You Earn) and you will receive a payslip from them in the same way as you would in any other employment. The payslip will show the assignment value, your salary/bonus payment, any deductions made, any statutory payments e.g. SPP and the umbrella company margin.

There are many issues which surround the contracting industry and an umbrella company will be able to advise which will affect you; for more information on issues such as IR35 please visit our Free Guides section where you can download  detailed informative guides.

You should be aware that all Umbrella Companies are, effectively, controlled by HMR&C regulations. All payments must be made through PAYE and HMR&C also dictate which expenses you are allowed to claim. Therefore, the only difference in your take home should be the Umbrella Company's margin. However, you should also be aware that, following the introduction of the AWR, some umbrella companies are making unlawful deductions and not disclosing them until contracts have been signed. Therefore, you should ask for confirmation of all deductions, and the reason for the deduction, in writing before signing anything.

“What should I look for when searching for an Umbrella Company?” is a common question  – With this in mind we have set-up a basics guide to Umbrella Companies.

Our Choosing an Umbrella Company page covers the most common marketing ploys used by Umbrella Companies and will help you sort through the good and the bad. We have also written a free contracting guide which you can download here.

We try to keep things as simple as possible but if you do need any help using our service or you have any queries at all our friendly, fully trained Account Managers will be pleased to help you. You can telephone us on 01206 713680 or, if an email is easier: info@contractorumbrella.com